Federal Court Upholds Georgia Non-Compete Agreement

In H&R Block Eastern Enterprises, Inc., v. Morris(PDF), 09-11184 (11th Cir. 2010), a Circuit Court of Appeals determined that a non-compete agreement that national tax preparation company H&R Block used for its Georgia employees was enforceable.

Here, former employee Vicki Morris worked as a seasonal tax preparer for the 2000 – 2005 tax seasons. Each year, Ms. Morris signed an employment agreement that contained a non-compete and non-solicitation clause. The employment agreement prohibited Ms. Morris from providing tax-related services to any H&R Block client that she had serviced within her work district or a 25-mile radius of her work office for a period of two years following her termination of employment.

After H&R Block terminated her employment in December 2005, Ms. Morris opened her own company and prepared tax returns for 87 former H&R Block clients, 47 of whom she had personally serviced. H&R Block filed the instant lawsuit against Ms. Morris.

Under Georgia law, courts consider several factors to determine if a non-compete agreement is reasonable: the duration of the restriction, the geographic scope, and the type of activity prohibited. Applying these factors to the H&R Block non-compete clause, the court found the duration (two years), geographic scope (work district or 25-mile radius), and type of activity prohibited (H&R Block clients she had serviced) to be reasonable. In particular, the court found that the prohibited activity was reasonable because it only prevented Ms. Morris from providing tax preparation services to the clients that she had previously serviced at H&R Block, and did not prohibit her from servicing other H&R Block clients or the general public. The court found that the non-compete agreement appropriately balanced Ms. Morris’s right to earn a living with H&R Block’s right to protect its client relationships.

While many states employ the same test as Georgia, they may have widely varying outcomes. For example, allowable non-compete durations may range from a maximum of six months to several years. Other states such as California generally prohibit non-compete agreements. Because the enforceability of non-compete agreements is state-specific, employers need to make sure the agreements are well drafted for each particular jurisdiction.